Palaniappan Chidambaram’s budget proposals are threatening to slow down Bengal’s dream run in the infotech sector.

Topping the concern of chief minister Buddhadeb Bhattacharjee’s blue-eyed sector is the Union finance minister’s decision to slap service tax on lease rentals on commercial usage.

“It will make plug-and-play office space dearer. Though the tax is applicable everywhere in the country, we will suffer more, as the information technology (IT) industry is new here and we have just started,” said state IT minister Debesh Das.

Some of Chidambaram’s other proposals — from introduction of minimum alternate tax for IT companies to announcing the end of tax sops for IT companies in Software Technology Parks of India (STPI) by March 31, 2009 — have not gone down well with the state’s sunrise sector either.

With Bhattacharjee projecting the state as the next IT hub in the country, a number of infotech companies are looking at the state as an investment destination.

As interest in the state is going up among IT companies, property developers from across the country have bought land in Calcutta to develop office space. According to estimates, around 18 million sq ft of office space will be added in the next two to three years (see graphic).

Following the imposition of service tax, the existing lease rent — between Rs 28 and Rs 40 per sq ft — will move northwards by at least 12.36 per cent.

“The developers will definitely not bear the cost as the projects will not be viable if we absorb the tax,” said Pradeep Chopra, member of Confederation of Real Estate Developers Association of India.

Lease rents have traditionally been cheaper in Calcutta than other IT hotspots like Mumbai, Gurgaon and Bangalore and so, the increase will be proportionate across cities.

Setting up own campus can be a way out to beat the service tax blues, but lack of availability of land and its price — over Rs 2.2 crore per acre — are the problems here. The land price in other cities is much lower, in the range of Rs 50 lakh to Rs 65 lakh per acre.

“If companies like Wipro and Infosys decline to buy land at the rate asked by the Bengal government agencies, one can well imagine how difficult it is going to be for small and medium companies to buy a plot of land,” said the promoter of an IT start-up.

Even some of the bigger players in the Calcutta market, like Cognizant Technology Solutions, Genpact and IBM, operate from leased space because of ready availability and cheaper rates.

“About 25 per cent of our total cost is from infrastructure… We will have to charge more for projects,” said Kalyan Kar, managing director, Accleris.

As the profitability of small and medium firms has come to centre stage, state IT secretary Siddharth will meet representatives of the industry at Bengal Chamber of Commerce and Industry on Friday.

“We have to take some steps to help the growing industry… It is difficult to find cheap land in and around Calcutta and we will have to look beyond the city,” said IT minister Das.